Bank sales of fixed and variable annuities in March were 61 percent higher than total bank annuity sales in January, and 69 percent higher than March 2007.
Fixed annuities have sprinted forward as the go-to conservative investment vehicle, with sales out of banks leaping from $1.9 billion in January to $4.1 billion in March, according to figures from international research firm Kehrer-LIMRA.
The stock market is shaky and interest rates are low – investors are looking for the kind of safe harbor that fixed annuities provide, said James Loring, CFO for the Savings Bank Life Insurance Company of Massachusetts. That’s good news for SBLI, which underwrites fixed annuities and trumpets its reputation of being safe and low-cost, he said.
It’s helpful for banks, too, said Ken Kehrer of Kehrer-LIMRA, as they are increasingly reliant on the fee income from products such as fixed annuities. Fixed annuity sales are usually brisk in banks, anyway, he said, but now they are especially flourishing.
Investors frequently turn to fixed annuities in this kind of financial environment, and recent months reflect investors’ interest: From March 2007 up until January, fixed annuities hov-ered under $2 billion in sales monthly.
But the placid pattern broke early this year. In December, fixed annuities were at $1.4 billion, but started a steep uphill climb that brought it to $4.1 billion in March – a significant jump, Kehrer said. By contrast, variable annuities have remained relatively steady around $2 billion in the past year, even during fixed annuities’ upward spike.
That means fixed annuity sales accounted for about half the revenue in bank investment sales programs, when they normally account for only about 20-25 percent, he said.
Conservative Option
Casey Roberts, director of retail investment services at Sovereign Bank, said current interest rates are making other investments unappealing. Since January, the average one-year CD, for example, has carried an interest rate of less than 2 percent, while the base rate for a fixed annuity is between 3 percent and 4 percent, he said.
Investors seeking a steady return on their investment who are concerned about the volatility in the marketplace are taking a new look at annuities, SBLI’s Loring said. Tax advan-tages also sweeten the deal: As the investment grows, it compounds tax-free, unlike CDs.
Fixed-annuity customers also tend to be older investors who know that fixed annuities are a relatively safe bet: “If you’re retirement-minded Â… you don’t want to lose what you have,” Loring said.
Fred Nicholas, president of John Hancock’s bank distribution channel, said it isn’t surprising that banks are reporting more annuity sales, as most bank customers tend to be conser-vative-minded anyway.
